Expenditure rises by more than 50%, partly due to increased outlays on public sector wages
Kuwait's budget surplus narrowed in the first six months of its fiscal year as spending soared over 50 percent, partly thanks to increased outlays on public sector wages, while oil revenues fell, figures from the Finance Ministry showed.
The budget surplus for April to September was KD10.72 billion ($37.9 billion), a Reuters calculation based on official data showed. That was down 15 percent from KD12.65 billion during the same period a year earlier.
Although Kuwait's fiscal position is still strong because of its oil wealth, the International Monetary Fundhas told the government that it will need to invest in infrastructure projects and control public wage growth to strengthen the economy and maintain a healthy balance sheet.
Kuwait's prime minister echoed the IMF in October when he described the country's expensive welfare system as unsustainable and said the government needed to cut spending and consumption of natural resources.
Six-month state expenditure reached KD5.10 billion, up 52 percent from KD3.36 billion a year earlier, the figures showed. Revenues fell to KD15.82 billion from KD16.01 billion because of a decrease in the oil price.
National Bank of Kuwait, the country's biggest commercial bank, said in a report that the jump in spending was mostly due to current expenditure such as wages, rather than to investment.
Part of the increase may be due to the timing of some payments rather than to any increase in allocations over the full fiscal year, so spending growth is expected to moderate considerably by the end of 2013/2014, NBK said.
It added that much of the first-half spending surge apparently involved governmental transfers that would not affect the real level of demand in the economy, so the figures did not necessarily mean a huge boost to economic growth.
Kuwait pledged $4 billion in aid to Egypt after the overthrow of Islamist Egyptian President Mohamed Mursi in July, and quickly began disbursing that aid.
Nevertheless, the spending and revenue numbers are in line with the IMF's warning that if Kuwait does not curb spending growth, government expenditure could exceed oil revenues by 2017/18, raising the risk of budget deficits.
Although senior government officials are discussing that risk, it is not clear whether they have the political freedom to address it.
Kuwait's fractious political system has made it difficult for the government to push through economic reforms that are unpopular with voters. Any government attempt to cut subsidies for citizens or curb public wage growth could cause a backlash in parliament from lawmakers who support raising benefits, and possibly set off public sector strikes.
And as the spending sores towards public sector salary's, the majority these salary's are spent abroad. Studies conducted by the Canadian company (S.M) indicate Kuwaitis spent roughly $4.6 billion on tourism in 2013, equivalent to 1.2 billion dinars.
Report quoted the average expenditure of a Kuwaiti tourist as $3,000 per day, distributed in flight tickets, hotel reservations, entertainment, and miscellaneous. It added approximately 54 percent of the expenditure of Kuwaiti tourists is taken by air tickets, while hotel reservations constitute 18 percent, 8.5 percent for food, 4 percent for public transportation, 5.3 percent for car rental and 4 percent for entertainment.
This signals that although the government has used this spending as a key appeasement policy to calm the streets, it is not to the benefit of the local economy.